US job market thrives as claims hit 5-year low
By Amanda Cooper
NEW YORK (Reuters) – The number of U.S. workers seeking new
jobless benefits fell last week to a five-year low, the
government reported on Thursday, while a private group said the
services sector grew last month, boding well for the economic
outlook.
The strong data came one day before the closely watched
Labor Department jobs report. Economists expect a solid 200,000
gain in nonfarm payrolls in December, with the jobless rate
holding steady at 5 percent.
In other data, major U.S. retailers on Thursday reported
that deep discounts lured holiday shoppers last month and
pushed sales slightly ahead of expectations, but a
disappointing profit forecast from Wal-Mart raised concerns
that consumer spending may tail off.
“The jobless claims drop shows good strength in the labor
market at the end of the year,” said Gary Thayer, chief
economist at A.G. Edwards & Sons in St. Louis. “It shows that
the economy has recovered after the hurricanes and is heading
into the new year with good momentum and good job prospects.”
The unexpected fall in jobless claims was not the product
of a particular special factor, a government analyst said, but
cautioned there is often volatility around holidays.
In its weekly report, the Labor Department said 291,000
initial claims for state jobless benefits were filed last week,
the lowest since September 2000 and down from a revised 326,000
in the prior week. It was the largest weekly drop since late
September.
The decrease in claims outstripped Wall Street’s
expectations of a fall to 320,000 last week from the originally
reported 322,000.
But some said the data should be taken with a grain of
salt. “It’s Christmas, it’s a difficult week for seasonal
adjustments,” said David Sloan, an economist with 4CAST Ltd. in
New York.
The larger-than-expected drop brought a four-week moving
average of initial claims, which smooths weekly volatility to
provide a better view of underlying labor market trends, down
by 9,250 to 316,750, its lowest level since August.
Benchmark U.S. Treasuries prices were weaker on the day but
recouped some of their earlier losses, with the 10-year note
last yielding 4.36 percent, up a basis point on the day, but
down from an intra-day high yield of 4.38 percent.
Meanwhile, Wal-Mart, the world’s biggest retailer, said its
fourth-quarter profit would likely reach only the low end of
its forecast after a weak December. Wal-Mart posted just a 2.2
percent increase in December sales at U.S. stores open at least
a year.
Higher interest rates and costly winter heating bills could
weigh on consumer spending, which accounts for roughly
two-thirds of U.S. gross domestic product and provided an
invaluable prop to the economy in the past few years.
SERVICES THRIVE
A separate report from the Institute for Supply Management
showed the U.S. services industry expanded further in December,
thanks to lower energy costs, rising new orders and continued
job growth.
ISM said its non-manufacturing index rose to 59.8, from
58.5 in November, above forecasts for a rise to 59.0.
The number 50 divides growth from decline in the sector
which accounts for about 80 percent of overall U.S. economic
activity and includes anything from restaurants and travel
agencies to banks and beauty parlors.
“All the components are above the break-even point of 50.
There is also relief in the prices paid component from lower
energy costs along with easing in delivery time,” said Lynn
Reaser, chief economist at Banc of America Capital Management
in Boston.
“The jobs component remains quite strong versus the
November figure. On balance, the bulk of the U.S. economy bodes
well for solid growth in 2006,” she said.
The employment component edged up to 57.1 in December from
57.0, while the prices-paid gauge fell to 69.5 from 74.2.
Minutes from the Federal Reserve’s mid-December meeting
released on Tuesday showed some officials think the United
States might currently be near full employment.
The Fed has hinted its 18-month long policy-tightening
campaign may soon be over but officials have warned that a
tighter labor market could raise the risk of inflation and give
the bank a reason to keep raising rates.
Since June 2004, the Fed has brought rates up to 4.25
percent with a series of gradual increases and financial
markets are pricing in a quarter-point increase at the next
meeting on January 31 and some chance of another rise in March.
In a separate report on Thursday, the employment consulting
firm Challenger, Gray & Christmas Inc said planned U.S. layoffs
rose 8.6 percent in December, pushing the 2005 annual total of
job cuts 3.1 percent higher than in 2004.
The National Association of Realtors said its Pending Home
Sales Index, based on contracts signed in December, fell to
120.6 in November, down 2.5 percent from both October and a
year ago and its lowest reading since January 2005.
Home sales have slowed in recent month’s as the Fed’s rate
rises have finally begun to rein in the housing market.